Bluff & Bluster

Bluff And Bluster Could Be Worse Than A Wing And A Prayer

Milton Friedman, an axiomatic economist himself, said inflation is the one form of taxation that can be imposed without benefit of legislation. Like a most promiscuous individual who professes virtue, our Government tells us its losing battle over the last five years has been with inflation.

But not for want of trying to control it, at the expense of the very engines of the economy. So this failure, by implication, must be excused. The cost of living has rocketed upwards but we must endure it as our due because of the actions of our elected representatives in the Government.

That  the rampant inflation has lightened the load of some of the national debt reckoned in rupees because of its perpetual devaluation, over 13% since May 2013 alone, and the termite- like eating away of even a fixed amount of hard currency debt, is another story of undeniable mathematics.

There is always a silver lining of this kind, but losses such as this one will make lenders specify more stringent safeguards and conditions in future dealings with India. Some exporters and importers, some IT companies too, have also benefited from this sharp devaluation if they had prior agreed fixed price contracts. But in a weakening, uncertain economy, this can only be a one-time windfall.

The general malaise is what is driving the foreign investor and his billions away, because you cannot make money standing on a land sinking like Atlantis below your feet. But our Government does not have to explain itself to a band of highly erudite economists.

It deals essentially with the semi-literate and the illiterate, and can try and cheat them with comic book images of richness and poorism, money and the lack of it, haves and have nots,  always depicted in simplistic, idiomatic  crudity, without once going into why we are poor amongst all our potential riches. And never ever have to go into who is responsible for our shabby circumstances.

The UPA employs a strategy of bluff and bluster to cover up the economic perils facing India. It also seeks to distract the public from the disastrous effects of its failed economic policies.

Economist Jagdish Bhagwati of Columbia University, a firm reformer, so  not amongst the busload of ‘povertarians’, who seem to prey on us like so many flies on a carcass; says  present policies could take us back to the crisis of 1991.

That was when we could barely pay for our import commitments for seven days, and had to put our few billions of dollars in gold, on a plane to Switzerland, in order to obtain a little bridge financing.

The ‘B&B’, as in bluff and bluster, is then typical of desperation; of the Finance Minister assuring us he can make the payments on the current account deficit, at least for this year, and other such leaky boat assurances.

Mr. Bhagwati is also quoted as saying that Congress’s survival in power beyond the end of this term of office and economic prosperity are  ‘tied together’.

But the UPA does not think so, holding its voting public does not comprehend the gravity of the situation and can be misled.

And accordingly, it is not growth the UPA has pursued or is going to. It relies instead on the ‘poverty politics’ strategies promoted by   Mr. Amartya Sen, Mr. Jean Dreze and others, which to their mind have much better emotional quotient.

If Opinion Polls are any indication, the people of India are not impressed, but as usual these are educated correspondents, and who knows what the voting masses are thinking. Nobody but the grass-root cadre might know and these people too are never asked.

But keeping the election strategies aside for a moment, the moves to remove more and more of the petroleum subsidies, commendable as it might be in macro-economic terms, has been timed very badly indeed. Subsidies can be removed in times of prosperity  without anyone minding much, but hurt doubly when prices are spiralling out of control anyway. 

So making the price of diesel and petrol ever costlier while the rupee continues to lose value, is a near perfect formula for runaway inflation of the suicidal kind and puts incredible price pressures on the people at large.

This despite the stern efforts to curtail liquidity on the part of the RBI which have failed to stem the drop in the rupee value but wrecked the stock market and destabilised the banks.

No liquidity means no investment towards growth, but essentials will have to be purchased nevertheless at ever increasing prices. And projects underway will have to be completed with unplanned price escalations. Some will consequently fail and be abandoned amidst horrendous losses.

From low or minus growth at present we are headed for worse stagflation next. And that too will be something we will waltz into, full of our good intentions, that like a sofa- cum- bed, are meant to serve the dual purpose of getting this Government re-elected, and alleviate a smidgin of poverty too.

The manipulation of the vote banks is as cynical as any Zimbabwe that noted Columnist Swapan Dasgupta likened India to recently.

Our Election Commission may prevent blatant rigging Zimbabwean style, but our polity has not grown up enough to deserve a better class of politician yet. Our laws are there to be subverted. Our politics is the politics of money power and muscle devoid of any vision, idealism or understanding of economics for that matter.

(908 words)

August 5^th, 2013

Gautam Mukherjee